France Telecom to buy Orange for $40.36 billion 
By Bloomberg News
May 30, 2000, 5:00 a.m. PT
URL: http://news.cnet.com/news/0-1004-200-1976706.html 

update PARIS--France Telecom said it will buy Orange from Vodafone AirTouch
for 26.9 billion pounds ($40.36 billion) and combine
the U.K. wireless company with its other mobile units ahead of an initial
share sale by early next year. 

The French company will pay 13.8 billion pounds ($20.7 billion) in cash and
11.3 billion pounds ($16.95 billion) in new shares and
assume 1.8 billion pounds ($2.7 billion) of Orange debt. It will also pay
Orange's 4.1 billion-pound ($6.15 billion) fee for a new mobile
license in the United Kingdom, bringing the total outlay to 31 billion
pounds ($46.52 billion). 

Selling shares in the division, to be led by Orange chief executive Hans
Snook, will help France Telecom pay for licenses and
networks to offer fast Internet access on wireless devices across Europe, it
said. The business, which will become Europe's
second-largest mobile phone company after Vodafone, could be worth as much
as $146 billion, analysts said. 

"With this acquisition, France Telecom becomes a major international
player," said Jacques-Antoine Bretteil, who helps manage
$700 million at International Capital Gestion, including France Telecom
stock. 

France Telecom shares were up $7.75, or about 6 percent, to $131 at Friday's
close on the New York Stock Exchange. In European
trading, the stock fell as much as 5.8 euros ($5.43), or 4 percent, to 138.6
euros ($129.76); it had gained 11 percent since Thursday,
when it became the leading candidate to buy Orange. 

Vodafone, which agreed to sell Orange to win antitrust clearance for its
$166 billion Mannesmann acquisition, said it had held talks
with Dutch company Royal KPN and WorldCom of the United States. 

Revenue potential "gigantic"
Buying Orange gives France Telecom a large and fast-growing mobile phone
company, filling a hole in its European network. It also
gives it one of five licenses to sell new mobile services in the United
Kingdom, a month after it quit an auction for the permits where
total bidding hit 22.5 billion pounds ($33.76 billion). 

Orange's Snook said investors shouldn't underestimate the potential for the
new services. "The revenue potential is going to be
absolutely gigantic," he said. "A year from now it will make the prices paid
in the U.K. look inexpensive." 

After the purchase, France Telecom will control wireless companies in 10
countries, including Belgium, the Netherlands, Lebanon
and Denmark, for a current total of more than 20 million mobile subscribers.
France Telecom forecast the unit will have as many as
30 million clients by the end of the year. 

Vodafone, the world's largest mobile phone company, has about 35 million
European subscribers in companies it controls, while
Europe's current No. 2, Telecom Italia Mobile, has about 22.5 million
customers. 

Recovering from setbacks
The purchase puts France Telecom on the offensive after a series of setbacks
over the past year. The company's decade-long
alliance with Germany's Deutsche Telekom fell apart; it lost in its bid to
buy German mobile company E-Plus Mobilfunk; and it failed
to win one of the third-generation licenses in Spain. 

"The acquisition of Orange and the creation of New Orange is a major step in
France Telecom's strategy to become a European
leader and global player," chief executive Michel Bon said. 

Orange's Snook and Graham Howe, deputy chief executive, agreed to stay on as
a result of the French company's plan to sell
shares in the unit, people familiar with the talks said. 

New Orange shares will be sold in London, Paris and New York by the end of
March. The company would have had full-year 1999
sales of about 8 billion euros ($7.49 billion) last year, France Telecom
said. 

The purchase, which is subject to approval by European Union antitrust
authorities, will start adding to earnings before interest, tax,
depreciation and amortization in 2002. The price values each Orange
subscriber at 6,741 euros ($6,313), the company said. 

Potential Spanish conflict
Orange owns 7 percent of Xfera Movile, a Spanish wireless company that won a
third-generation license and whose largest
stakeholder with 27.5 percent is France Telecom rival Vivendi. 

Xfera's owners plan to exercise pre-emption rights to prevent France Telecom
from taking a stake when the French company
completes the Orange acquisition, a Vivendi spokesman said. 

By paying for part of the purchase with 129.2 million new shares, the French
state's stake in France Telecom will fall to 54 percent
from 61 percent. Vodafone will own a little less than 10 percent of the
French company. 

France Telecom said it would use funds from an IPO of New Orange to buy back
up to 8.4 billion pounds ($12.6 billion) of its own
shares from Vodafone. The IPO, along with sales of other assets, will also
go to paying back loans used to fund the cash portion of
the acquisition price and the fee for the U.K. mobile phone permit. 

The company could also resell the shares it buys from Vodafone in the second
half of 2001. 

The acquisition is also conditional on confirmation Orange will receive the
new licenses and approval by France Telecom's
shareholders of the new shares. The purchase is expected to be completed by
late July or August. 

Vodafone will use the proceeds to pay for new mobile phone licenses and
networks in Europe as well. It paid 5.9 billion pounds
($8.85 billion) for a license in the United Kingdom last month. 

The company today said it would also sell shares in its Italian traditional
fixed-line unit Infostrada by September or October. A sale of
shares in Mannesmann Arcor, the German fixed-line company, will follow a few
months later. 

It made the announcement as it reported a profit of 104 million pounds
($156.1 million) in the fiscal year ended March 31, compared
with a loss of 1.1 billion pounds ($1.65 billion) a year ago. The numbers
were adjusted to include earnings from United States-based
AirTouch in both periods. 

Credit Suisse First Boston, Morgan Stanley Dean Witter and Rothschild & Cie.
are advising France Telecom. Dresdner Kleinwort
Benson and DLJ International advised Orange. 

Copyright 2000, Bloomberg L.P. All Rights Reserved. 



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